Welcome toFinancial & Managerial Accounting for Decision Makers 3e!

To our adopters of the first two editions, thank you for the great success those editions have enjoyed. We wrote this book to equip students with the accounting techniques and insights necessary to succeed in today’s business environment. It reflects our combined experience in teaching accounting to college students at all levels. For anyone who pursues a career in business, the ability to read, analyze, and interpret accounting information is an essential skill. Financial & Managerial Accounting for Decision Makers is written for future business leaders who want to understand how accounting information is prepared and how the information is used by investors, creditors, financial analysts, and managers. Our goal is to provide the most engaging, relevant, and accessible textbook available.

Target Audience

Financial & Managerial Accounting for Decision Makers is intended for use in an introductory accounting course that combines financial and managerial accounting concepts, either the undergraduate or graduate level; onethat balances the preparation of accounting information with its analysis and interpretation. This book accommodates mini-courses lasting only a few days as well as extended courses lasting a full semester. This book is real-world oriented and focuses on the most salient aspects of accounting. It teaches students how to read, analyze, and interpret financial accounting data to make informed business decisions. To that end, it consistently incorporates real company data, both in the body of each chapter and throughout the assignment material.

Real Data Incorporated Throughout

Today’s business students must be skilled in using real financial statements to make business decisions. We feel strongly that the more exposure students get to real financial statements, the more comfortable they become with the variety in financial statements that exists across companies and industries. Through their exposure to various financial statements, students will learn that, while financial statements do not all look the same, they can readily understand and interpret them to make business decisions. Furthermore, today’s students must have the skills to go beyond basic financial statements to interpret and apply nonfinancial disclosures, such as footnotes and supplementary reports. We expose students to the analysis and interpretation of real company data and nonfinancial disclosures through the use of focus companies in each chapter, the generous incorporation of footnotes, financial analysis discussions in nearly every chapter, and an abundance of assignments that draw on real company data and disclosures.

Focus Companies for Each Chapter

Each chapter’s content is explained through the accounting and reporting activities of real companies. Each chapter incorporates a “focus company” for special emphasis and demonstration. The enhanced instructional value of focus companies comes from the way they engage students in real analysis and interpretation. Focus companies were selected based on student appeal and the diversity of industries.

Footnotes and Management Disclosures

We incorporate footnote and other management disclosures, where appropriate, throughout the book. We explain the significance of the footnote and then demonstrate how to use the disclosed information to make managerial inferences and decisions. A representative sample follows.

Financial Analysis Discussions

Each financial accounting chapter includes a financial analysis discussion that introduces key ratios and applies them to the financial statements of the chapter’s focus company. By weaving some analysis into each of these chapters, we try to instill in students a deeper appreciation for the significance of the accounting methods being discussed. One such analysis discussion follows.

Assignments that Draw on Real Data

It is essential for students to be able to apply what they have learned to real financial managerial decisions. Therefore, we have included an abundance of assignments in each chapter that draw on real data. A representative example follows.

Balanced Approach

As instructors of introductory financial accounting, we recognize that the first financial accounting course serves the general business students as well as potential accounting majors. Financial & Managerial Accounting for Decision Makers embraces this reality. This book balances reporting, analysis, interpretation, and decision making with the more standard aspects of accounting such as journal entries, T-accounts, and the preparation of financial statements.

3-Step Process: Analyze, Journalize, Post

One technique we use throughout the financial accounting portion of the book to maintain a balanced approach is the incorporation of a 3‑step process to analyze and record transactions. Step 1 analyzes the impact of various transactions on the financial statements using the financial statement effects template. Step 2 records the transaction using journal entries, and Step 3 requires students to post the journal entries to T-accounts.

The template captures each transaction’s effects on the four financial statements: the balance sheet, income statement, statement of stockholders’ equity, and statement of cash flows. For the balance sheet, we differentiate between cash and noncash assets to identify the cash effects of transactions. Likewise, equity is separated into the contributedand earned capital components (the latter includes retained earnings as its major element). Finally, income statement effects are separated into revenues, expenses, and net income (the updating of retained earnings is denoted with an arrow line running from net income to earned capital). This template provides a convenient means to represent financial accounting transactions and events in a simple, concise manner for assessing their effects on financial statements.

International Financial Reporting Standards

The convergence of U.S. GAAP and International Financial Reporting Standards (IFRS) is in process. Our introductory students should be prepared for this eventuality with a basic understanding of the similarities and differences in the current reporting requirements and methods under U.S. GAAP and IFRS. Consequently, we incorporate discussions that examine these similarities and differences where appropriate throughout the book in Global Perspective boxes, as illustrated here:

We also include exercises and problems throughout the text, where appropriate, to stimulate a discussion of international reporting differences. Our approach is conceptual—we purposefully avoid the detailed mechanics that are more appropriate for an intermediate level accounting course at either the undergraduate or graduate level. We feel strongly that our IFRS coverage exposes students to the similarities and differences without overwhelming them.

Innovative Pedagogy

Business Insights

Students appreciate and become more engaged when they can see the real world relevance of what they are learning in the classroom. We have included a generous number of current, real world examples throughout each chapter in Business Insight boxes. The following is a representative example:

Decision Making Orientation

One primary goal of an accounting course is to teach students the skills needed to apply their accounting knowledge to solving real business problems. With that goal in mind, You Make the Call boxes in each chapter encourage students to apply the material presented to solving actual business scenarios.

Mid-Chapter and Chapter-End Reviews

Accounting can be challenging—especially for students lacking business experience or previous exposure to business courses. To reinforce concepts presented in each chapter and to ensure student comprehension, we include mid-chapter and chapter-end reviews that require students to recall and apply the accounting techniques and concepts described in each chapter.

Research Insights for Business Students

Academic research plays an important role in the way business is conducted, accounting is performed, and students are taught. It is important for students to recognize how modern research and modern business practice interact. Therefore, we periodically incorporate relevant research to help students understand the important relation between research and modern business.

New In the 3rd Edition

New Co-author: Michelle Hanlon, the Howard W. Johnson Professor and Professor of Accounting at the MIT Sloan School of Management, joined the 3rd edition. Michelle has won several awards for her research and is the winner of the 2013 Jamieson Prize for Excellence in Teaching at Sloan where she regularly teachesintroductory financial accounting to MBAs. Hanlon recently testified in front of the U.S. Senate Committee on Finance and the U.S. House of Representatives Committee on Ways and Means regarding U.S. tax policy. She brings a wealth of knowledge and expertise to this best-selling author team.

myBusinessCourse: myBusinessCourse (MBC) is a complete learning and assessment program that accompanies the textbook and contributes to student success in this course. MBC has been expanded to include nearly all the multiple choice questions, mini-exercises, and exercises from the 3rd edition. In addition, the Guided Examples and eLectures have been revised and improved.

Financial Accounting Chapters (1-12)

Updated Standards: As appropriate, the text and assignments have been updated to reflect the latest standards. A brief discussion of the pending Revenue Recognition standard is included in Chapter 6 and the chapterend appendix contains more detailed coverage of the new standard. The text and assignments have also been revised to reflect the change in accounting standards related to Extraordinary Items. Chapter 10 now includes a discussion of the new lease standard.

In addition to the chapter specific changes, there have been several changes that span the entire book. Some of these global changes include: updated numbers for examples, illustrations, and assignments that use real data; updated footnotes and other nonfinancial disclosures; updated excerpts from the business and popular press; numerous assignments in each chapter have been revised or replaced with new assignments.

Managerial Accounting Chapters (Chapters 13-24)

Contemporary Topics and Examples: The authors have revised and added new Business Insight boxes throughout each chapter to bring the accounting to life for students using current, real‑world examples.

Several new Research Insight boxes have been incorporated throughout the text to emphasize the important relationship between research and modern business.

Real Company Examples: Dozens of new, real company examples have been integrated throughout the text.

Added In-Chapter Reviews for each Learning Objective with corresponding Guided Example videos to test students’ understanding of the topics covered.

Learning Objectives have been refined and written at the granular level, in order to ensure coverage of all topics. Each Learning Objective now contains a Review and corresponding Guided Example video.

Revised Assignments: Nearly two‑thirds of the assignments in each chapter have been revised and updated.

Updated Design to enhance student understanding of topics, and enhanced several graphics for student comprehension.

All 12 Opening Vignettes have been updated

Introducing myBusinessCourse

myBusinessCourse is a complete, secure, web-based training and e-Learning solution. There is nothing to download or install; it is accessible through any modern web browser and most mobile devices.

eLecture Videos

Created by the authors of the textbook

Consistent with the textbook's explanations and approach

Cover learning objectives and concepts from each chapter

Ideal for remediation

Ideal for online and hybrid classrooms

Guided Example Videos

Created by the authors of the textbook

Provide problem solving strategies as well as solutions

Offer clear, step-by-step demonstrations of how to solve select problems from the textbook

Auto-graded Assignments

Provides immediate feedback

Create assignments using problems from the textbook

Additional randomized versions of assignments provide extra practice

Ideal for remediation

Include select questions from test banks

Detailed Reporting Tools

Quickly review the performance of individual students

Quickly review the performance of entire class

Use reports on student performance to customize your lectures to fit student needs

In addition to teaching accounting and quantitative analysis, he has taught in Cornell’s Executive Development Program. He earned his doctorate degree from the University of Michigan. He is a former member of the Financial Accounting Standards Board Advisory Committee and the Financial Accounting Foundation, which oversees the FASB. He was president of the American Accounting Association in 1982 and received the association’s Outstanding Educator Award for the year 1987. He also received the AICPA’s Notable Contributions to Accounting Literature Award in 1966 and 1977.

Professor Dyckman has extensive industrial experience that includes work with the U.S. Navy and IBM. He has conducted seminars for Cornell Executive Development Program and Managing the Next Generation of Technology, as well as for Ocean Spray, Goodyear, Morgan Guaranty, GTE, Southern New England Telephone, and Goulds Pumps.

Professor Dyckman has coauthored eleven books and written over 50 journal articles on topics from financial markets to the application of quantitative and behavioral theory to administrative decision making. He has been a member of the editorial boards of The Accounting Review, The Journal of Finance and Quantitative Analysis, The Journal of Accounting and Economics, The Journal of Management Accounting Research, and The Journal of Accounting Education.

Michelle L. Hanlon is the Howard W. Johnson Professor at the MIT Sloan School of Management. She earned her doctorate at the University of Washington.

Prior to joining MIT, she was a faculty member at the University of Michigan. Professor Hanlon has taught financial accounting to undergraduates, MBA students, executive MBA students, and Masters of Finance students. Professor Hanlon also teaches Taxes and Business Strategy to MBA students. She is the winner of the 2013 Jamieson Prize for Excellence in Teaching at MIT Sloan.

Professor Hanlon’s research focuses primarily on the intersection of taxation and financial accounting. Her recent work examines the capital market effects of the accounting for income tax, the reputational effects of corporate tax avoidance, and the economic consequences of U.S. international tax policies for multinational corporations. She has published research studies in the Journal of Accounting and Economics, the Journal of Accounting Research, The Accounting Review, the Review of Accounting Studies, the Journal of Finance, the Journal of Financial Economics, the Journal of Public Economics, and others. She has won several awards for her research and has presented her work at numerous universities and conferences. Professor Hanlon has served on several editorial boards and currently serves as an editor at the Journal of Accounting and Economics.

Professor Hanlon has testified in front of the U.S. Senate Committee on Finance and the U.S. House of Representatives Committee on Ways and Means about the interaction of financial accounting and tax policy. She served as a U.S. delegate to the American-Swiss Young Leaders Conference in 2010 and worked as an Academic Fellow at the U.S. House Ways and Means Committee in 2015.

Robert P. Magee is Keith I. DeLashmutt Professor of Accounting Information and Management at the Kellogg School of Management at Northwestern University.

He received his A.B., M.S. and Ph.D. from Cornell University. Prior to joining the Kellogg faculty in 1976, he was a faculty member at the University of Chicago's Graduate School of Business. For academic year 1980-81, he was a visiting faculty member at IMEDE (now IMD) in Lausanne, Switzerland.

Professor Magee's research focuses on the use of accounting information to facilitate decision-making and control within organizations. He has published articles in The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics, and a variety of other journals. He is the author of Advanced Managerial Accounting and co-author (with Thomas R. Dyckman and David H. Downes) of Efficient Capital Markets and Accounting: A Critical Analysis. The latter book received the Notable Contribution to the Accounting Literature Award from the AICPA in 1978. Professor Magee has served on the editorial boards of The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics and the Journal of Accounting, Auditing and Finance. From 1994-96, he served as Editor of The Accounting Review, the quarterly research journal of the American Accounting Association. He received the American Accounting Association's Outstanding Accounting Educator Award in 1999 and the Illinois CPA Society Outstanding Educator Award in 2000.

Professor Magee teaches financial accounting to MBA and Executive MBA students. He has received several teaching awards at the Kellogg School, including the Alumni Choice Outstanding Professor Award in 2003.

Glenn M. Pfeiffer is Professor of Accounting at the George L. Argyros School of Business and Economics at Chapman University.

He received his M.S. and Ph.D. from Cornell University after he earned a bachelor's degree from Hope College. Prior to joining the faculty at the Argyros School, he held appointments at the University of Washington, Cornell University, the University of Chicago, the University of Arizona, and San Diego State University.

Professor Pfeiffer’s research focuses on financial reporting and capital markets. He has investigated issues relating to lease accounting, LIFO inventory liquidation, earnings per share, employee stock options, corporate reorganization, and technology investments. He has published articles in The Accounting Review, the Financial Analysts Journal, the International Journal of Accounting Information Systems, the Journal of Applied Business Research, the Journal of High Technology Management Research, the Journal of Accounting Education, and several other academic journals. In addition, he has published numerous case studies in financial accounting and reporting.

Professor Pfeiffer teaches financial accounting and financial analysis to undergraduate, MBA, and Executive students. He has also taught managerial accounting for MBAs. He has won several teaching awards at both the undergraduate and graduate levels.

Al L. Hartgraves is Professor Emeritus of Accounting at the Goizueta Business School at Emory University in Atlanta, Georgia. He has been a frequent Guest Professor at Johannes Kepler University in Linz, Austria and at the Helsinki School of Economics and Business Administration in Finland.

His published scholarly and professional articles have appeared in The Accounting Review, Accounting Horizons, Management Accounting, Journal of Accountancy, Journal of Accounting and Public Policy and many other journals. Students at Goizueta Business School have selected him on six occasions to receive the Distinguished Educator Award. In 2002 he received Emory University’s highest teaching award, The Scholar/Teacher Award, and in 2003 he was recognized as the Accounting Educator of the Year by the Georgia Society of CPAs. He has been recognized as an Outstanding Faculty Member in two editions of The Business Week Guide to the Best Business Schools. He is a Certified Public Accountant (inactive) and a Certified Management Accountant, having received the Certificate of Distinguished Performance on the CMA exam. He received his Ph.D. from Georgia State University.

Wayne J. Morse, a hiking and canoeing enthusiast, is Professor Emeritus at the Saunders College of Business at Rochester Institute of Technology.

An author or coauthor of more than fifty published papers, monographs, and textbooks, he was a founding member of the Management Accounting section of the American Accounting Association. His most notable writings are in the areas of learning curves, human resource accounting, and quality costs. He was a member of the IMA Committee on Research and an AICPA Board of Examiners subcommittee, and he has served on the editorial boards of Advances in Accounting, Trends in Accounting Education, Issues in Accounting Education, and Management Accounting Research. A Certified Public Accountant, he received his Ph.D. from Michigan State University. Prior to joining RIT, he was on the faculty of the University of Illinois, Duke University, the University of Tennessee, Clarkson University, and the University of Alabama-Huntsville.

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